Fiscal cliff combines tax hikes, spending cuts

ANDREW TAYLOR, Associated Press

Thursday, November 8, 2012

WASHINGTON (AP) — So just what is this “fiscal cliff” that has the financial markets rattled and economists and policymakers alike in a tizzy over the potential for sending the economy into another tailspin?

It’s a one-two punch of expiring Bush-era tax cuts and major across-the-board spending cuts to the Pentagon and domestic programs that could total $800 billion next year, based on Congressional Budget Office estimates.

The cliff is the punishment for previous failures of a bitterly-divided Congress and White House to deal with the government’s spiraling debt or overhaul its unwieldy tax code.

The largest component of the cliff comes with the expiration of tax cuts enacted in 2001 and 2003 and extended two years ago in the wake of President Barack Obama’s drubbing in the 2010 midterm elections.

It also includes sharp spending cuts imposed as a consequence of the failure of last year’s deficit-reduction supercommittee” to reach agreement. There are other elements, chiefly a 2 percentage point cut in payroll taxes orchestrated by Obama and unemployment benefits for the long-term jobless that would disappear.

Specifically, the fiscal cliff includes:

—The expiration of Bush-era tax cuts on income, investments, married couples and families with children and inheritances.

—A $55 billion, 9 percent cut in defense spending next year and another $55 billion in cuts to domestic programs, including a 2 percent cut to Medicare providers.

—The expiration of unemployment benefits for the long-term jobless and a sharp cut in reimbursements for doctors participating in Medicare.

—The expiration of Obama’s temporary 2 percentage point cut in payroll taxes.

—The imposition of the alternative minimum tax on some 26 million households, which would raise their taxes by an average of $3,700.

—A variety of smaller taxes cuts for both businesses and individuals collectively known as tax “extenders” in Washington-speak. They include a tax credit for research and development and a deduction for sales taxes in states that don’t have an income tax.

A Congressional Budget Office study in May estimated that the fiscal cliff would force tax hikes and spending cuts totaling over $600 billion in the first nine months of next year — or perhaps $800 billion or so over the entire year if allowed to stay in effect.

A subsequent less detailed CBO update estimates a somewhat smaller impact. The agency is expected to release a new estimate soon.

The fiscal cliff would require such a sharp cut in the deficit that the economy would contract, economists say.

Not all elements of the fiscal cliff are guaranteed to be averted. New taxes on family investment income exceeding $250,000 set to take effect Jan. 1 as a way to help pay for Obama’s health care law are unlikely to be forestalled; and the common wisdom in Washington is that temporary payroll tax cuts and unemployment benefits won’t be extended.

Some Democrats have called on Obama to propose renewing the payroll tax cut, but he has not taken a position.

Some experts say that the economy could withstand going over the fiscal cliff for a short period of time because the Treasury Department might be able to adjust tax withholding tables to mitigate its affects and that agency budget chiefs could be flexible in allocating the automatic cuts, known as a sequester, and buy several weeks’ worth of time to negotiate.

Some Democrats want Obama to play hardball on the fiscal cliff to try to force Republicans to accept increased tax rates on income exceeding $250,000 for couples. Republicans warn that type of approach would get Obama’s second term off to a bad start.

More like this story

JCLifer 6 months, 2 weeks ago

Recession/Depression Part 2 on its way!

These cuts to thousands of federally funded state employees are gonna really knock the socks off the Central Missouri economy.

Buckle down the hatches. Stock up. Sell everything you can now. It is gonna get real ugly by next summer around here.

tonto_goldberg 6 months, 2 weeks ago

The columnist seems to have a sense of humor:

"Some Democrats want Obama to play hardball on the fiscal cliff to try to force Republicans to accept increased tax rates on income exceeding $250,000 for couples. Republicans warn that type of approach would get Obama’s second term off to a bad start."

I don't think there's any way for the GOP to "give" Obama a "good" start to his second term. Some amount of maturity and realism are needed, though.

Things are a little different in Congress now. Not a big difference but a little different. The people of the United States returned Obama to the White House and they elected two more Democrat Senators when a majority GOP Senate seemed likely a few months ago. Several newer GOP House members lost their bid for re-election, resulting in fewer Tea Party GOP House members.

Perhaps John Boehner can negotiate a deal and make it stick. Confrontation won't work any more. Remember Newt Gingrich and the government shutdowns? Wanna try it again?

RobHunterJohnson 6 months, 2 weeks ago

Tonto did you read what you wrote, " I don' think there's anyway for the GOP to give Obama a good start" ? If the Congress comes in with that attitude, I say MR President, DRAW THE LINE OUT FOR THEM, political suicide if they go pledge to Norquist this round? They better give on something, or Lifers post may come to fruition! Rob

JCLifer 6 months, 2 weeks ago

What can they give? This is a lose-lose for everyone. Just who is gonna lose the most. I don't see much room in negotiation- massive cuts need to happen, and the taxes need to be raised. A bunch of folks WILL get hurt.

The bill for Obama's 6 Trillion Dollar Spending Spree needs to be paid. Let's hope they can figure out a payment plan now, rather than kicking it down the road again and again where it just keeps growing.

i have my doubts. I don't hear anyone on either side talking like they really want to do what is best for the country. It is still business as usual politics, catering to cronies and special interests.

MO4LIFE 6 months, 2 weeks ago

From what i am hearing from people on the streets and throughout the country is that a civil war is getting ready to come and the militias which have grown 300% since we got a black president are going to kick it off.

Just a thought if we get another black president in the next four years and they still won't work with him then wouldn't we consider them racists. The country voted and put him back in office but yet the Republicans are still on this STOP OBAMA EXPRESS. They don't care about the people of the country just there stupid lil ideaologies and political differences. That is not the way to get this country on its feet. Now that Obama has been re-elected can we please get to work and worry about the citizens and not mr Norquist and the Corporations (oh yeah SCOTUS said they are people too......What a crock of BS) Also if Hilary steps down as secretary of state I would like to see OBAMA make Colin Powell be the next SOSUS. Old Republican that still has some sense left and is not on the leash of Norquist and his Flunkie Junkies.

TrueStory 6 months, 2 weeks ago

Would you all get off the race thing. I don't care if he is purple. It's not that he is black, it is that he does not understand what the word budget means! You can't just make money and spend it, money has to be earned somewhere.

Paroquet 6 months, 2 weeks ago

Lifer? The bill from Obama's "spending spree" is directly tied to failed Bush policies.

Ever bought a fixer-upper?

JCLifer 6 months, 2 weeks ago

Six trillion dollars later and nothing is fixed. it is still in worse shape than when he got it, and getting worse every month. Only the Wall Street FatCats and the GM-UAW are doing better.

So do you really think we can afford to take out another $14 trillion mortgage on this old fixer-upper?

tonto_goldberg 6 months, 2 weeks ago

Rob, it's like JCLifer wrote below. I don't see any big victory available for anyone. There's hard work to be done and very little time to do it. An early compromise would be better for everyone than a series of threats and counter-threats.

The article that JCLifer linked below indicates that the right is still mourning their loss, when the country needs their best efforts to solve some problems. That attitude has to change before we can get to a workable compromise. The left will have to accept bigger cuts than they are willing to offer and the right will have to accept tax increases.

JCLifer 6 months, 2 weeks ago

Read this article if you can stomach it. It paints a pretty dark future for our country:

powerlineblog.com/archives/2012/11/the-meaning-of-yesterdays-defeat.php

RobHunterJohnson 6 months, 2 weeks ago

I just read the article JC, how much did the Bush tax cuts take from the Goverment over 11 or 12 years? Rob

JCLifer 6 months, 2 weeks ago

The money was never the government's in the first place. Can't you get it in your heads that taxpayers' money belongs to the taxpayers?

If the government didn't have the money, it surely shouldn't have gone on a 6 trillion dollar spending binge, putting it all on credit. I know some folks who have done things like that and they are now flat broke. Where I come from, we call spending more than you earn a term that sounds like "stupid".

RobHunterJohnson 6 months, 2 weeks ago

End the Bush Tax Cuts for starters, is that not the sticking point? Take it away from all of us if need be? When my credit got out of hand I had to bite the bullet, I want to pay my fair share over what ever the Congress comes up with! Raise the SS back up, sorry about those raises folks, they will be on SS sooner than they think, should have never been cut to begin with! Mr Nixon election is over, give the state another raise they deserve it. Raise the limit, there are people who get paid by the Goverment to figure it out? To help Grace with the math 300,000 divided by 1,200 = 250, 250 divided by 12 = 20.83 thats years, no interest, or nothing! If I retire at 62 add 21 years makes me 83, 14,400 coming in from SS a year. That ain't didly squat! I have tried to do things right, but the longer I continue tapping my saving to make ends meet, through the periods of Unemployment the longer I will have to work, or the shorter my gross will be for my monthly payment to myself in retirement. Find the waste, it is out there , with the barrage of commercials with personal devices on tv, diabetic shoes costing $500 dollars a pair , they are just tennis shoes! I have seen 3 pairs of these shoes go to family and friend??? Where did you get those new shoes , the man came in and gave them to me??? Kinda of reminds me of the $600 dollar toliet seats, $200 dollar claw hammers the goverment was buying in 70s and the 80s? There is waste , congress needs to just need to find it? That would be a good JOB for Vickie Hartzler, or Blaine Luektemeyer. Rob

tonto_goldberg 6 months, 2 weeks ago

Giving up the Bush Tax Cuts is the sticking point for the GOP - for now. Accepting big cuts to military programs will be the next.

Cutting Medicare and Medicaid will probably be a sticking point for the Democrats. Meanwhile, various sources have estimated that 30% of Medicare spending goes to fraud, waste, and abuse. Missouri has a pretty strong Medicaid program so waste there would likely be less than 30% but more than 0%. Other states may not be so lucky. So - yes, reducing fraud and waste in these two very big and expensive programs would benefit those of us who aren't getting paid for those nonexistent treatments. It would allow more real services to be provided to the people who really need it and give us big savings as well.

It would have been nice of Vickie Hartzler and Blaine Luetkemeyer had been replaced this last election, but Vickie won re-election by keeping her predecessor's very strong constitutuent services operation in place and Blaine is in a very safe district. Blaine is also able to avoid saying and doing stupid things like some other very conservative candidates, and he calls my home phone every month or so to leave me a message with an update on the issues as he sees them.

JCLifer 6 months, 2 weeks ago

Rob, why don't you just take out a huge mortgage to keep living high on the hog- like you think it is OK for Obama to keep doing?

Don't worry- you will probably die before you have to pay it back, so really it will be "free money". They OWE it to you- you are ENTITLED. If you want to buy something, then the bank and the government should PAY for it so you can have it for FREE.

If we had SOCIALISM you could just get other people to work hard so you could TAKE their money that you are ENTITLED to.

RobHunterJohnson 6 months, 2 weeks ago

JCLifer, are you not on SS? If that is the case, I hope you don't think I have worked my entire career to take care of you? I have not taken anything from this goverment, except for Unemployment, which comes out by the hour in unemployment insurance, paid in by every legitimate employer in the this state or other states. The math above is current for myself as of last year so I am confused as to your position! Entitled? I am not on welfare, I am not getting stamps, I never got any wick, I did get $ 45 dollars a week for gas in 1979 for 10 weeks, extra to my unemployment ($90 a week) to learn to weld at LinnTech, that totals out at $450. for gas money to and from Jefferson City for 10 weeks! They owe us our SS...... if i retired today my insurance would be $400. a month for the rest of my life! There is also a FEE FOR MEDICARE RIGHT NOW IS IT NOT $100? If I retire in 6 years where will my insurance be will it be $900 a month, $1200, it was $100. when I got into a fixed pension 18 years ago. It is time to get these health cost under control, and the plan is not perfect but it is a great start, I don't know about other Rich people, but Romney has been putting one on us for a long time! I try to get every penny on my taxes, 17% last year, and this clown who wanted to be president paid 14% some thing is wrong? Something has been really wrong for a long time! If you read what I said get rid of the Tax Cut period, Build up SS, I am a big boy, I am willing to pay my fair share of whatever,and how about You? Rob

JCLifer 6 months, 2 weeks ago

Oops! Sorry, Rob. I was responding to Paraquot's post above. I got sidetracked about Paraquot's post about how we should just keep borrowing more and more money for the "fixer-upper" I guess i was in a fog about who i was responding to.

You don't mind working and paying your fair share, but you want fair treatment. That is very fair, and I am in agreement with you. sorry for the misplaced rant. Not sure what I was thinking.

RobHunterJohnson 6 months, 2 weeks ago

I appreciate that JC, health exchanges would work, we need blocks of buying power, the only one who will suffer will be the licensensed professional selling on a one on one basis. The unions buy for a group, it still costs but we get a better deal, if the majority of us were insured, we would have a reduced rate for all! Which would help lower cost to me, which would keep rates down as I go into retirement, and it would have to help all! Rob

asb 6 months, 2 weeks ago

You're wandering down one of your darker alleys there Lifer. Debt is essential, Debt service is a managed process. the US debt will be addressed by spending cuts and tax increases. Debt bets on the future and depends on it. We could've had this issue behind us but for the hijacked Congress. Nobody's entitled, and nobody is expecting something for nothing (I realize there actually are some with both attitudes, poor and rich alike, but very few). For over 200 years the US has been the model for socialist government, with a only a handful of our emulators going to such extremes that they hurt their people more than helped. Yes, Western government is socialist, but the continued attitude that we're sliding down a demon hole of the Left's making is just backwards. We must have debt or we have no future, and we must manage it or we're likewise headed to ruin. It does no good to stamp and scream. Take part, use you obvious talent. Quit name-calling and fear mongering and get to work.

JCLifer 6 months, 2 weeks ago

More than doubling our debt in just a few years for no results received except to continue to prop up the FatCats does not sound like proper "debt management" to me. That is why I think we need a major change, not another four years and ending up with $20+ trillion in debt.
Both sides are to blame for the current condition, and neither side is gonna be able to fix it. You can blame it on congress for not raising taxes just as easily as you can blame Obama for spending all this money and wasting it. We are so hopelessly in trouble with no end in sight. No one has any good solutions because there aren't any. The only thing we can do is raise taxes and eat beans and rice for the next ten years or so. The working person is going to have to pay for all of this mismanagement. The rich won't pay. The dependents won't pay. Once again, the working person has to pay for the sins of our so-called leaders. The problem is that the working person has low wages and is already paying for his or her own debt. Good paying jobs are leaving our country by the containership full. No one has the money to pay for all this debt and to pay for all the entitlement programs. You can easily say that things are not too bad, but they are bad for everybody concerned. Things are going to get a whole lot worse under austerity and higher taxes and the inevitable inflation that is coming. There is no good solution. That is the problem. No one wants to suffer, but everyone will have to suffer. We keep kicking the problem down the road, and Obama wants to keep spending more and more. We are severly hosed.

RobHunterJohnson 6 months, 2 weeks ago

Tonto I just put it on the table, mor_max there is not going to be a civil war. Grace is just full of tea Party koolaid, and karl rove should be in jail since the bush adminstration! Then we would not have to put up with all his Commercials, they are as bad as all the MC ones at night? The bottom line is we have to pay for what we got, and what we will recieve, if we don't like it we need to say something to Blaine Leuktemeyer, or my favorite Vickie Hartzler; have I told you what she and her husband have fleeced out of our TAX payers in Farm Aid, $775,000 dollars???? Now you want to talk about goverment hand outs there some waste Blaine? No one has given me anything accept some unemployment, my, and your employers pays it in unless someone is cheating. Rob

JCLifer 6 months, 2 weeks ago

Don't forget Claire and her private jet company!!!

JCLifer 6 months, 2 weeks ago

Or Peter's urine samples collection from the bike races.

Gotigers 6 months, 2 weeks ago

Pleae everyone--realize how silly this thread is. We are all arguing which party has put us in the hole when the answer is that they have BOTH done it. The R's with not having the wealthy pay social security after they have earned over 108K and the D's with giving every creature comfort to those who won't work.

It is YOU (the working middle class) who foots the bill for everyone. We need to thrown all of them out -Reid, Boehner all of them. How do we allow them to create a Healthcare system for us and that THEY DO NOT HAVE TO PARTICPATE IN?

Maddening.

TrueStory 6 months, 2 weeks ago

Now there is someone with reasoning skills. Gotigers!

JCLifer 6 months, 2 weeks ago

Gotigers boiled it down pretty good.

While our pensions and social security and health insurance dwindles to nothing, the legislators and presidents of both parties get excellent free health insurance and huge pensions free for the REST OF THEIR LIVES! (And we argue that they are stupid???)

hudson 6 months, 2 weeks ago

Well-said

asb 6 months, 2 weeks ago

Politicians' benefits are not even measurable in our total economy, but the perception is valid and could be part of the solution. Gotigers does say much well, but I would argue that public assistance is hardly every creature comfort. As long as sacrifice is shared, we've got the means to deal with our debt and prosper. Hey, we've got a tougher nut coming at us real fast, climate and environmental issues. There's more money to be made solving both issues than the oil industry is making today, so there's the answer: monitize green and there we go.

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